I am the president of Metis Strategy, a CIO advisory firm that I founded in 2001. I have advised many of the best chief information officers at multi-billion dollar corporations in the United States and abroad. I've written for the Wall Street Journal, CIO Magazine, CIO Insight, Information Week and several other periodicals. I am also the author of Implementing World Class IT Strategy: How IT Can Drive Organizational Innovation (Wiley Press, September 2014) and of World Class IT: Why Businesses Succeed When IT Triumphs (Wiley Press, December 2009), a book on leading IT practices that has sold over 12,000 copies around the world. Since 2008, I have moderated a widely listened to podcast entitled “The Forum on World Class IT,” which features a wide array of IT thought-leaders, and is available at www.forumonworldclassit.com on a biweekly basis. I have been the keynote speaker at a host of corporate conferences and universities in the US, Canada, Mexico, the United Kingdom, the Republic of Ireland, Spain, China, India, Australia, and Saudi Arabia. You can reach me at peter.high [at] metisstrategy.com or on Twitter @WorldClassIT

Karlgaard: I agree with it totally, Peter. Dell is an interesting example. Dell had a pretty tough, high turnover culture, and yet Dell stock went up 2,000 fold in the 1990s. It was the fastest growing stock of that decade and it worked until it didn’t work anymore. Right now, Amazon’s market value is still somewhere close to $200 billion so the idea that Amazon’s market cap is going to double from here, becomes less likely. Amazon had a lot of employees over the years who watched their options increase 10 fold, maybe 50 fold, maybe a hundred fold. Now, you are looking at a new generation where a mere double is a big, big lift and at that point you start losing the next generation of the best and brightest people. The same thing happened with Microsoft. The best and brightest people always worked at Microsoft. Microsoft had a market cap of over $600 billion in late 1999 and now it’s around $250 billion today despite having four times the revenue it did in 1999, and it’s not the talent magnet that it was. The new CEO I think is going to have to work to repair the culture.

Google, on the other hand, has done a really good job of thinking about corporate culture along the way. They nearly always make every magazine’s list of the best places to work and it’s not just the campus with all the freebies and massages and the cool looking bicycles and so forth. It’s also the culture of trust. So of all the new companies that benefited by rising stock price, Google has done the most in my view to foresee that there will be a day when the stock price flattens and that a near doubling of the stock price will be a big achievement, and at that point, who is going to work for you below market rates.

High: We began this conversation with you mentioning that, although you didn’t put it this way, you got out of the bubble of Silicon Valley and got into Midwest to meet with organizations like Northwestern Mutual and Mayo, as opposed to the Facebooks or the Googles of this world. It is interesting that you found companies that are not necessarily the first ones that one thinks about as sexy organizations but in fact that’s partially the secret of why they have never been in style but never out of style, either, right?

Karlgaard: I think the company that blew me away the most in the research for this book is Northwestern Mutual. Based in Milwaukee, it’s been around since 1857. It has $25 billion in revenue, $225 billion in assets, and $1.5 trillion in contracts. During my research, I tried to think of the white-collar job that would be the worst job in the world. For someoneaswired as I am, I thought that getting up every day and having to make ten cold calls, get three meetings, and get one new customer out of it and doing that every day for your whole career would be really tough. I wanted to know what would get people to commit to a career like that and to see if there would be something that Northwestern Mutual is doing that their competitors weren’t doing and to see if, in fact, this is a durable industry that Wall Street or Silicon Valley couldn’t disrupt because, after all, we are just simply talking about actuarial probabilities and then creating some kind of outgrowth to run those probabilities. Well, Northwestern Mutual has 10,000 commissioned sales representatives, some of whom do really well, while maybe 5,000 are still struggling to get a real footing. How does that company create trust, conviction and people who commit to their career for the long term? It is just an amazing thing. It doesn’t do it with people coming out of Wharton or Harvard Business School or Stanford Business School. It does it with military veterans, often combat veterans, people who have been laid off at previous careers and a lot of women whose first marriage didn’t work. Northwestern Mutual finds these exceptionally gritty people from gritty places in life and they create this conviction the likes which I haven’t seen. They got a CEO, John Schlifske, who was hired internally. He is a Wisconsin guy, and he looks like a retired Green Bay Packer though he isn’t. He is a big, warm man, off the charts in empathy but a very good financial head too. It’s a wonder to see – I attended their sales conference last year in Milwaukee, and the language spoken at that conference sounded like opening up a book like Think and Grow Rich by Napoleon Hill or The Power of Positive Thinking by Norman Vincent Peale. That’s how they talk. That’s what they really believe. It was like an army of George Baileys – the character played by Jimmy Stewart in the movie It’s a Wonderful Life. That’s the kind of earnestness that they go for, and they do it consistently, every day and so the Northwestern culture inspires people and creates this enormous trust both within the company, the sales people, and externally. That was a revelation to me because you don’t see many companies out there doing that, yet the benefit seems to be so clear.

High: You said that in essence the Soft Edge is the only competitive advantage of lasting companies, which would seem to suggest that if you do this well the other benefits come. If you are going to focus on getting one of these right first, this is an area really to make sure that you are getting right, is that correct?

Karlgaard: I want to be clear about this, Peter. There are people out there who will say that culture trumps everything. In fact, last week I was interviewing Howard Behar who was the President of Starbucks from 1989 to 2003. He was really the number two under Howard Schultz. Howard Schultz grew up very poor, but was very driven, focused and goal oriented but like a lot of entrepreneurs such as Steve Jobs, Jeff Bezos, and Bill Gates, during his hay day, not really that great on empathy and all of those softer values. Howard Schultz had the vision to give Howard Behar all the latitude he wanted to create this great culture. Starbucks was growing fast and they were reaching these inflexion points where they were in danger of blowing up. Suddenly there would be a wave over a six-month period, a lot of turnover in their employees and the surveys would show that people were falling out of love with Starbucks. So Howard said we’ve got to emphasize the magical experience if we are going to put Starbucks on all four corners of every city block, of every city in the world, and that means the culture has to matter a lot here. So at Starbucks they found this interesting dynamic balance between a very driven CEO and the cultural values. You still have to have a great strategy. You still have to execute well. If you don’t have those cultural values though, you become fragile; you become fragile when the luck runs out on your stock price, you become fragile if there is a disruption in your industry.

A company that you and I both really admire and the CEO that you and I both really admire is SAS Institute, the analytics company in Cary, North Carolina. They do roughly $3 billion in revenue and are a privately held company. Being private has helped them put so much emphasis in culture values. Jim Goodnight is one of the epic figures in software. The company gets a lot of attention for their soft values and they are the company that also makes the list of the world’s best places to work. There are some obvious reasons why they make it. They have this great campus with an Olympic-size swimming pool, childcare, great cafeteria, art on the walls and beautiful grounds. When I talked to Jim Goodnight and Jim Davis, the CMO, they thought it was all about trust. All of the magazines love to report on all of these visual depictions of the great place to work, but for them at the end of the day it’s about trust. It can be a very simple idea that if you are trying to recruit these PhDs in statistical sciences, the best of the best around the world, whether they give you their best ideas or not, is still up for grabs. Nobody is going to share their best ideas, if they don’t trust that their employers are going to make good use of those ideas and reward the person for sharing those ideas. As I say, trust more than anything else has made it an enduring company. I do think they have an advantage of being a privately held company, so it’s easier to invest in these softer edge values.

According to Tom Peters, who wrote in Search of Excellence along with Bob Waterman back in 1982, soft is hard. Hard is actually the easy thing to do because the metrics will support you and the financials are there. They are transparent and everyone can see the investment, data, and analytics are all there – you get an ROI or you don’t – you can measure it. It takes guts to invest in a really good, strong culture. It is going to be there even when luck runs out on the stock price. It is going to be there if a new hip young competitor comes into the field and starts disrupting the heck out of you or your customers your employees, or your shareholders. These great cultures buy grace periods and that’s why you see these companies that have been around for decades with these great cultures. They are all going to run into problems at some time or another, and they are all going to run into that period where they are going to have their best employees to stay around and their best customers to give them a little extra time to figure it out and have their shareholders be patient during the transformation.

High: I’ve always found it refreshing that SAS is in the business of analytics. Of course, they have a whole variety of analytics tools they use to evaluate how well their team is doing, but just as you say, despite the fact that it is their bread and butter business-wise they pay at least as much attention to the Soft Edge characteristics that you described which have brought great benefit.

Karlgaard: The good news for the more quantitative people is that there are a lot of interesting tools and techniques that can link the Soft Edge to performance in a more direct way. SAS is doing one of them and that’s visual analytics. Typically in a corporation, people who are analytical go into finance, IT, and operations. It is just naturally where they excel. The right brain people tend to go into marketing and HR and design and those kinds of things that have been more commonly found on the Soft Edge. There has always been a little bit of this Venus/Mars tension that runs between the two. What visual analytics can do is to get right brain people and left brain people sitting in the same room, agreeing on what the challenges are and agreeing on some of the strategies. It’s a great common language for inside of organizations. Another great tool and technique that I discovered just a week ago, is the importance of simulation and then really good debriefing sessions after a task or accomplishment. I interviewed a flight instructor for the Navy Blue Angels. Now, talk about having to execute to precision – some of these routines done by the Blue Angels include flying 500 miles an hour, with the wingtips only 18 inches apart. The smallest error could lead to catastrophe and there have been some catastrophes. So how do they make sure that they don’t have those catastrophes? They are practicing all the time either for real, simulating it on a simulator or talking about what they are going to do just for preparation in the beginning. They debrief every simulation, every practice and every performance. When they come into the debriefing room there is no hierarchy; everybody can say what they did right, what they did wrong and what they needed to improve: “There has never been a perfect performance, so let’s talk about what we did that was imperfect today.” Maybe it was they deviated and were flying 12 inches apart instead of 18 inches apart. They even debrief how they march out to the plane because they want for themselves a mind frame where they are doing everything with precision before they even get into their planes and take off. I think we are at the dawn of an era where there will be tools and techniques that validate the Soft Edge virtues.

Big data and predictive analytics can really help a company hold on to its customers. It can measure and tell you when a customer is about to bolt. It can give you all of these little tell-tale signs that this customer needs more love and care and so forth but it’s also going to guide the conclusion that companies are going to make. I believe if we have a great culture, we are going to be addressing this issue far fewer times than if we have a sloppy, un-empathetic culture. So I believe that the two are going to come together in interesting ways.

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